The government has overestimated the ongoing strength of Australia’s terms of trade and commodity prices, putting future surpluses at risk, according to economists and financial advisers.

NAB senior economist David de Garis, speaking at the bank’s post-budget breakfast in Perth, said the nominal gross domestic product forecasts in the budget appeared to be optimistic.

“This is one area where I would argue the government could have been more conservative in forecasting a further decline in the terms of trade,” he said.

Nominal gross domestic product has been scaled back on previous forecasts but is still tipped to grow from 3 per cent in 2012-13 to 5 per cent in 2013-14, and remain at 5 per cent or above over the out years.

According to budget papers, the terms of trade are forecast to fall by 7.5 per cent in 2012-13, but rebound to just a 0.75 per cent decline the following year.

“You only have to change those parameters a little bit and those surpluses will disappear,” Mr de Garis said.

Financial commentator and ING Private Equity Access director Don Stammer said he also believed commodity prices and the terms of trade would fall at a greater rate than budgeted.

“Basically the budget’s assuming no change in Australia’s terms of trade over the next two years, and I think we’ve got to expect some deterioration,” he said.

Dr Stammer said the rapidly developing shale gas industry in the United States would impact on local gas prices.

He predicted ongoing structural deficits within the budget thanks policies like the national disability insurance scheme.

“ I think the risk is Australia now faces structural deficits in the budget over the next five to 10 years,” he said.

“Structural deficits ... are a worry for several reasons: they give you an excessive build up of debt, they also eat into our limited national savings.”

“A structural deficit can turn a global financial crisis into a sovereign debt crisis ... it reduces the flexibility.”

Both speakers agreed the budget needed to be viewed against the backdrop of the looming federal election in September. “This is a very political budget,” Dr Stammer said.

“There’ll be massive fiscal challenges for whoever is elected on 14 September.”

Mr de Garis said the election posed a risk to some of the underlying assumptions in the budget.

“The uncertain fiscal outlook is fraught with more difficulty because of the election coming up in September,” he said.

Given its location, NAB’s Perth budget breakfast would not be complete without some commentary on Western Australia’s chief bugbears: the mining tax and the distribution of goods and services tax revenue.

Mr de Garis’s observation this year’s forecast mining tax revenue would be just $200 million, down from $2 billion, prompted laughter.

It also spurred an audible comment , “very clever Wayne” from one observer on the top table.

Next year, WA's share of GST revenue will fall to just 45¢ for every dollar raised, and is forecast to fall to 35¢ by 2014-15. a

Dr Stammer labelled the system as unfair as it penalised WA for its economic success.

Speaking after the budget, WA Premier Colin Barnett said the GST carve-up continued to be the most important issue facing the state.

“I find it an absolute insult to every man woman and child in this state that we are so undervalued by Canberra that we’re only worth now 45¢ in the dollar,” he told ABC radio on Wednesday.

“People should be marching in the street on that.”

The Australian Financial Review

BY Natalie Gerritsen

Natalie writes about WA politics and state issues from our
Perth bureau.